Pestle Analysis Overview

Introduction

PESTLE analysis is a macro environmental factors framework that is helpful in environmental scanning. This tool is very essential and helps to understand market decline or growth.  This also helps to understand direction for operations, potential and position of a business.

[1] PESTLE analysis is normally part of market research and normally helps companies to consider macro environmental factors that could affect its operations. In other words, PESTLE analysis acts as a measurement tool. PESTLE is an acronym that stands for Political, Economic, Social, Technological, Legal and Environmental factors that help in market analysis for organisations.

This framework can be used to review a marketing proposition, direction of a Company or its position. PESTLE analysis can also help in team building games in an organisation. PESTLE analysis encourages business managers to have a proactive thinking. This helps a lot in making business decisions rather than relying on instinctive or habitual reactions. PESTLE analysis is important because it ensures that an organisation’s endeavours are positively aligned with powerful change forces that are affecting the entire world.

When an organisation takes advantage of change, it is more likely to succeed than if its activities are opposing change. A PESTLE analysis helps business owners to avoid taking actions that will lead to failure due to factors beyond the business’ control. It is more useful for new companies to adapt to the realities of new business environment.

Political

Every business operates in a nation that has got a government and diverse political scenario. Political factors in a nation always affect operations of any business. When carrying out political analysis, one has to put into consideration the various political factors that can affect the operations of a business. This includes type of government that is found in the nation. Factors that have to be considered in this case include the stability of the government.

[2] There are various political reasons that can affect the operations of a business. They include the freedom of press that exists in a nation. Levels of corruption also have impacts on business operations. The rule of law that exists in a nation may positively or negatively affect a business. Each government normally has different levels of bureaucracy. This normally places different requirements on start up or business operations.

In political analysis, one has to consider the deregulation and regulation trends that exist in a nation. This has to be considered on the possible effects on business. The changes likely to occur in the political environment have to be considered.  The wars and conflicts should be put into consideration in relation to businesses. Government policies that are in line with operation of businesses should be evaluated.

Other factors that have to be considered include any funding that is given to business by the government. It also includes grants and government initiatives that may have either positive or negative effects on a business. Each nation has trading policies which have to be adhered to by businesses. This is also a factor to be evaluated. The government term has to be considered in relation to when it will end and possible effects organisations in case change occurs. Also learn which political factors affecting hotel industry

Example

The railway industry has been affected by political changes that occurred in the previous government that so conservative. This political scenario led to its privatisation. The railway industry moved from being run by British Rail. The Railway industry responded by adopting a new structure where stations and tracks are maintained by Rail track. You may also be interested in reading Business and Society Relationship

Economic

There are various economic factors in a nation that can affect the operations of a business. All these have to be considered when carrying out a PESTLE analysis.[3] Among the factors that should be put in mind includes any changes that are likely to occur in the economic environment. One has to consider the current economic growth rate in the nation. This simply refers to an economy’s increase in value of services or goods produced. High growth rate will lead to positive impacts on organisations and businesses within the nation. Another element that is included in PESTLE analysis is inflation rates in the nation. This could have negative impacts on a business.

Interest rates are also included in PESTLE analysis. This simply refers to the fee that is normally paid on borrowed money. Changes in interest rates in a nation have impacts on organisation. The analysis has to include future changes in inflation, interest and economic growth rates. The labour costs in a business environment have to be analysed too. This is to know whether they are high or low and the possible future changes. The current state of globalisation in businesses in the nation should be considered and its relationship to business operations. Income distribution within a business environment should be considered. This is because every business environment has got different rates of income distribution. [4]

For instance the market could have high income earners or low income earners. In case a Company will soon be started in vicinity it shows that there is possibility of increase in income distribution. The levels of disposable income in the market are also an element that should be considered. The degree of unemployment in the market and possible changes are factors that have to be analysed in the PESTLE analysis. The stage of business cycle is also an element worth considering in this analysis.

A business that has prospects of going global has to consider the trends and economies that exist overseas. General issues that are related to taxation have to be considered in this analysis. This includes the taxes that are charged by the government on specific products and services. Market and trade cycles normally affect business operations. This should also be analysed. There are many economic factors that have to be put in mind like distribution trends and market routes. Every market has unique market routes and trends.

Example

There have been major changes in economy in United Kingdom. There has been inflation in the United Kingdom economy. In response to this Barclays bank increased its interest rates.

Socio- cultural

There are various socio-cultural factors that could affect business operations. All these factors are very essential and have to be put in mind in the PESTLE analysis. Population growth rates can affect business operations.[5] This should be evaluated in line with the age profile of the population. People normally have different attitudes to work which are normally influenced by their culture. Analysis has to be carried out in relation to attitude that people in the market have towards work.  The social taboos and attitudes of people in the market have to be analysed too. This is because they can have some adverse effects on business especially when it is not in line with what they believe. Public opinion is also a factor to be considered.

Lifestyle choice of the people can also affect business positively or negatively. The population’s socio-cultural changes have to be included in PESTLE analysis. Social mobility and attitudes to health and education are elements included in this analysis. Fashion that exists in a market can affect buying of products or not. Many societies normally have role models which influence population’s buyer behaviour. This should be included in PESTLE analysis as it has effect on business. Major events that that can influence the business are also to be included in the PESTLE analysis. The business has to be analysed in line with ethical issues of the society. Discover how a survey of hobbies and purchases can help a producer

Example

MacDonald Food Company has been operating in China. It has been dealing with indigenous or traditional food which has been delicacy to Chinese people. With time however, the population in China has become more time pressed and mobile. They just do not have the time to eat whole meals any more. The Chinese People now value convenience over taste or nutrition. This is due to western influence. The Company has responded to the change by changing the menu to fast food which can be taken within minimal time or carried away.

Technology

Technological environment has impacts on business operations. This is one area that should be researched on in the PESTLE analysis. Elements that have to be considered include the impacts of emerging technologies in the market. For instance the impact of reduction on telecommunications costs on the organisation. Markets where there is increased remote networking should be analysed and possible impacts on business evaluated. [6]

Possible impacts of transfer of technology have to be evaluated too. Maturity of technology in the market has to be considered too. Any technologies that are associated with the business or those that it depends on should be considered in PESTLE analysis.  Innovation potential is an element to be considered too. PESTLE analysis carried out should consider how to access technology in the market. Competing technology development in the market has to be analysed too.[7]

Example

Technologies in the world are becoming more complex and accessible all over the world. There is introduction of new MMS services in the market. This is the major change that Vodafone Company has had to deal with considering that it is global in nature. In response to these changes, Vodafone Company has recruited highly qualified personnel who are in charge of innovations. This team has helped this Company to come with phones easier to operate.  Many branches have been opened by the Company all over the world in response to accessibility of technology all over the world emanating from competitor Companies.

Legal

In PESTLE analysis, legal factors have to be considered. This includes any current legislation that can affect operation of business. This also includes any impending legislation affecting role of businesses. Future legislation has to be considered in this case. European and international legislations also have to be analysed and effects on business considered.

Example

There is a new anti-terrorist legislation imposed by U.K government that is also affecting information billing.  This means that Nokia Company has to get data that pinpoints the whereabouts of user in approximately few meters. In response to this Nokia Company is carrying out intensive research that will help it adhere to the new legislation.[8]

Environmental

Environmental factors have to be considered too when carrying out PESTLE analysis. This includes international or local environmental factors that can affect business operations. National impacts on business have to be considered too. This can also include the natural environmental factors that can affect the operations of a business.

Example

Major change in the environment in United Kingdom has been global warming. This has been due to coming up of many industries and also pollution that emanates from motor vehicles. This major change in environment in United Kingdom has affected operations in British Leyland Motors. This has led British Leyland Motor Corporation to change its engine make so that vehicles are environmental friendly.

Conclusion

PESTLE analysis is very essential for environmental scanning. This tool is very essential and helps to understand market decline or growth. This framework can also be used in marketing proposition, direction of a Company or its position. PESTLE is simply an acronym for Political, Economic, Social, Technological, Legal and Environmental factors that are essential in market analysis. An example of major change in social structure is in China. People have become more time pressed and mobile that they don’t have time for whole meals. This has affected MacDonald Company because it has responded by changing its menu to fast food.

References:

Armstrong. M. (2006):  A handbook of Human Resource Management Practice (10th edition); Kogan Page; London

Carroll, A. (1999): A PESTLE analysis in Business; Evolution of a definitional construct. Business and Society 38(3), 268-295

Castells, M. (2000): The Rise of the Network Society; Malden; Blackwell Publishers

Hiatt, J. (2006):  A Model for Change in Business; Government and the Community; Learning Centre Publications; Loveland; CO

Hilltop, J. (1994): European Human Resource Management in Transition: Prentice Hall, New York

James, H. (1991): Business Process Improvement; the Breakthrough Strategy for Total Quality; Productivity and Competitiveness; McGraw-Hill Trade

Maundy, L. (2001): An Introduction to Human to Human Resource Management: Theory

And Practice; Macmillan; Palgrave

Nohria, N. (1992): Networks and Organisations; Structure, Form and Action; Boston: Harvard Business School Press

Sparrow, P.  (1994): European Human Resource Management in Transition; Prentice Hall; New York

Thomson, C. and Rampton, L. (2003): Human Resource Management. Melbourne press, New York

[1] Armstrong. M. (2006):  A handbook of Human Resource Management Practice (10th edition); Kogan Page; London

[2] Carroll, A. (1999): A PESTLE analysis in Business; Evolution of a definitional construct. Business and Society 38(3), 268-295

[3] Hilltop, J. (1994): European Human Resource Management in Transition: Prentice Hall, New York

[4] James, H. (1991): Business Process Improvement; the Breakthrough Strategy for Total Quality; Productivity and Competitiveness; McGraw-Hill Trade

[5] Thomson, C. and Rampton, L. (2003): Human Resource Management. Melbourne press, New York

[6] Sparrow, P.  (1994): European Human Resource Management in Transition; Prentice Hall; New York

[7] Maundy, L. (2001): An Introduction to Human to Human Resource Management: Theory

And Practice; Macmillan; Palgrave

[8] James, H. (1991): Business Process Improvement; the Breakthrough Strategy for Total Quality; Productivity and Competitiveness; McGraw-Hill Trade